Fixed exchange rate

A fixed exchange rate, also known as a pegged exchange rate, is a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold. A fixed exchange rate is usually used to stabilize the value of a currency, against the currency it is pegged to. This makes trade and investments between the two countries easier and more predictable, and is especially useful for small economies where external trade forms a large part of their GDP. It is also used as a means to control inflation. In addition, a fixed exchange rate prevents a government from using domestic monetary policy in order to achieve macroeconomic stability.